TransUnion: Canadian lending market set for a strong 2021

Federal financial aid and payment deferrals largely kept Canadian credit consumers afloat during the pandemic

TransUnion: Canadian lending market set for a strong 2021

The Canadian lending market is poised for better growth this year with overall delinquency levels remaining very low, according to a new analysis by TransUnion.

In its just-released Q4 2020 Industry Insights Report, TransUnion said that government subsidies and payment deferrals were the major factors that kept Canadian credit consumers afloat during the worst of the pandemic’s economic ravages.

Increased consumer credit activity was “driven in part by recent improvements in economic and labour market activity.” While overall activity was generally still below the levels seen in prior years, balance and origination levels have risen “from the lows observed during the early stages of the COVID-19 pandemic,” TransUnion said.

Canada’s total credit product balance grew by 3.7% annually, yielding an additional $68.9 billion in additional outstanding credit as of the end of 2020. Mortgages propelled this growth significantly, with a year over year increase of 6.8% ($88 billion).

“Low interest rates and greater housing demand, as well as pent-up demand from earlier in the pandemic, have propelled growth for this credit product,” TransUnion reported.

The proportion of riskier borrowers (below-prime) fell by 10.6% annually, while the share of prime or better credit consumers went up by 4.9% during the same period.

“The overall risk composition of Canadian credit consumers improved in Q4 2020 compared to the prior year, despite the economic impact of COVID-19,” TransUnion said. “As of Q4 2020, almost 22% of credit consumers migrated upward to better score bands from the prior year, while only 13% migrated down to lower credit score bands.”

TransUnion also reported that 61% of consumers now believe that their household finances are at least the same or better than last year. Another 63% said that they would be able to continue making payments on credit or other obligations for at least one to three months.